Question

Consider the following potential events that might have occurred to Global Conglomerate on December​ 30, 2018. For each​ one, indicate which line items in​ Global's balance sheet would be affected and by how much. Also indicate the change to​ Global's book value of equity.​ (In all​ cases, ignore any tax consequences for​ simplicity.)

a. Global used $ 20 million of its available cash to repay $ 20 million of its​ long-term debt.

b. A warehouse fire destroyed $ 5 million worth of uninsured inventory.  

c. Global used $ 5 million in cash and $ 5 million in new​ long-term debt to purchase a $ 10 million building.  

d. A large customer owing $ 3 million for products it already received declared​ bankruptcy, leaving no possibility that Global would ever receive payment.

e.​ Global's engineers discover a new manufacturing process that will cut the cost of its flagship product by over 50 %.

f. A key competitor announces a radical new pricing policy that will drastically undercut​ Global's prices.

Answer 1